Why 401(k) Decisions in Your Last Working Years Matter More Than Ever

If you're like most workers in the United States, making your 40(k) contributions is a pretty routine habit. Most employers automatically deduct your contributions from every paycheck, and some even increase your contribution percentage for you each year. 

Because of this, most people don't think about their 401(k) retirement plans every day. However, once you reach your final working years, it's a good idea to pay closer attention to it and carefully consider the retirement decisions you make.

That's because the final few years you work are your last opportunity to contribute to your retirement account, project your retirement savings, and finalize your financial plan for the future. Here are a few other reasons why your 401(k) choices are so important right before you retire.

Catch-up contributions are your last chance to add extra money to your retirement account

In 2026, the IRS allows employees age 50 or older to make $8,000 in catch-up contributions. Those aged 60 to 63 can make $11,250 in catch-up contributions. Deciding to invest extra money can help increase your retirement savings.

Consider it your final push to max out your retirement account as much as possible before leaving the workforce for good.

Investment losses make a bigger impact

Most financial experts recommend that you make more conservative investments the closer you get to retirement. However, if there is a stock market crash or other economic issues that negatively impact your portfolio, it might tempt you to make early withdrawals.

However, recent Morningstar research shows that negative returns right at retirement tend to carry more weight because that's when you have the most in your account. So, as you near retirement, be prepared with a conservative withdrawal plan if there's economic uncertainty.

Health conditions may change your retirement date

While many people choose their retirement date in advance, sometimes health issues, job changes, family emergencies, or unexpected layoffs can cause them to leave the workforce earlier than they intended.

Because of that, decisions you make with your 401(k) at the end of your career become even more important, as you might not have as much time as you thought to increase contributions or adjust your portfolio allocation.

Simple mistakes may have bigger impacts

When you are in your twenties, making a 401(k) mistake, like forgetting to invest your cash or not taking advantage of your employer's match, is frustrating. But it doesn't derail your entire retirement plan.

However, when making mistakes during your last working years, the stakes are much higher. That's why it's crucial to carefully weigh decisions with your 401(k), including how much you're going to contribute, the funds you want to invest in, and who you trust to advise you on your retirement plan.

Investment amounts impact Social Security withdrawals

Another important consideration is how your 401(k) withdrawals and your Social Security checks will work together to provide you with retirement income. Some people want to delay Social Security to receive larger benefits. Others worry about doing so because they don't want to rely too heavily on early-retirement account withdrawals.

Making a plan with a financial advisor during your transition from working to retirement can help you decide when to receive Social Security benefits and when to make 401(k) withdrawals.

High 401(k) withdrawals can raise medicare premiums

Although 66 million people currently use Medicare, most people don't realize that if you earn more than $106,000 for single filers and more than $212,000 for joint filers, you will have to pay a Medicare surcharge.

These are additional health care expenses that some retirees might not expect. So, that's why it's so important to carefully plan your withdrawals, the lifestyle you want, and account for any health issues you may have.

Transitioning to a fixed income can be hard

Not many people talk about the challenges of transitioning from having a salary and trying to grow your 401(k) balance to living on a fixed income, trying to manage your withdrawals.

Your final years of working and how much you contribute to your 401(k) can help you feel more secure in retirement if you plan accordingly. For example, learning to live within a set budget and manage your spending can build solid habits that carry over into retirement.

Bottom line

The last few years that you work are an important time to make 401(k) decisions. This is when you have your last opportunity to top up your 401(k) investments and plan exactly when you want to retire, how much you want to withdraw, and how that will work with Social Security. 

Making good financial decisions in the last few years of your working life can make the difference between having a stress-free retirement and needing to generate additional income in retirement.

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